TY - JOUR
T1 - Public information arrival and investor reaction during a period of institutional change: An episode of early years of a newly independent central bank
AU - Brzeszczynski, Janusz
AU - Kutan, Ali
PY - 2015/8
Y1 - 2015/8
N2 - Employing unique data derived directly from the Reuters electronic brokerage platform for currency trading, this paper investigates the reaction of investors to central bank announcements on the foreign exchange market in Poland in the years 2000–2003. Our sample period captures a time during which the National Bank of Poland (NBP) gained independence and it was transforming institutionally and switching to a new monetary policy regime; namely inflation targeting. Evidence indicates that central bank communication helped reduce foreign exchange market uncertainty, measured by the conditional variance of foreign exchange returns, and increased trading volume. The findings suggest that in newly emerging economies with major institutional changes, investors may react significantly to central bank communication, and central banks can hence play an important role in market development during an institutional change. Our results also have broader implications for the applicability of micro-structure models in newly emerging economies.
AB - Employing unique data derived directly from the Reuters electronic brokerage platform for currency trading, this paper investigates the reaction of investors to central bank announcements on the foreign exchange market in Poland in the years 2000–2003. Our sample period captures a time during which the National Bank of Poland (NBP) gained independence and it was transforming institutionally and switching to a new monetary policy regime; namely inflation targeting. Evidence indicates that central bank communication helped reduce foreign exchange market uncertainty, measured by the conditional variance of foreign exchange returns, and increased trading volume. The findings suggest that in newly emerging economies with major institutional changes, investors may react significantly to central bank communication, and central banks can hence play an important role in market development during an institutional change. Our results also have broader implications for the applicability of micro-structure models in newly emerging economies.
KW - foreign exchange market
KW - central bank
KW - macroeconomic announcements
KW - investor reaction
U2 - 10.1016/j.jce.2014.07.004
DO - 10.1016/j.jce.2014.07.004
M3 - Article
SN - 0147-5967
VL - 43
SP - 727
EP - 753
JO - Journal of Comparative Economics
JF - Journal of Comparative Economics
IS - 3
ER -